Monday, June 22, 2015

The transactional challenge with increasing pulse production

India has an agriculture crop misallocation problem. There is surplus production of water-intensive paddy and deficit of pulses, which is largely a rain-fed crop. Prevailing policy encourages more paddy production - free farm power, high import tariffs, ever increasing Minimum Support Price (MSP). So last week the Government of India announced a policy to partially re-align the incentives - lower MSP increase for paddy and much higher for pulses.

But if history is any evidence (pulses production has remained stagnant despite a 50% increase in price of pulses over the past five years), this is unlikely to make any dent on the crop mis-allocation problem. Experts like Ashok Gulati claim that solving the problem requires crop-neutral incentive structure. In other words, reverse the entire incentive structure from paddy to pulses - do every thing currently being done to encourage paddy for pulses. I am not sure whether even this is likely to have much impact.

This is a well-trodden path. Apart from being the primary source of family income, people also grow paddy because it gives them their food staple, fodder for cattle, maybe dung for fuel, and also because they have always grown paddy. It is not easy to design incentives that can encourage such changes, they may need deeper behavioural shifts. Incentives, while essential in the long-run for mitigating the mis-allocation problem and enabling the transition, can only get you so far in the short to medium-term. Incentives will plant the seeds for gradual change, which however will happen only when the process gathers enough momentum and tips-over through, most often, changes in life-style or livelihood patterns or something causes a critical mass of people to shift their cropping habits.

Most economy or society-wide changes are always hard. Incentives help, and are even necessary, though not sufficient. They are necessary to get to the starting line, but not the finish line. They can only get you so far. Most often the reform required to get you to the starting line is decisional - change rules, deregulate, re-align incentives etc. But those required to get to the finish line are transactional - involving long-drawn engagement with stakeholders or dynamics generated by the initial decisional reforms which culminate in tipping-points or seamless transitions.